Certified Government Financial Manager (CGFM) Practice Exam 2026 - Free CGFM Practice Questions and Study Guide

Indirect costs are expenses that cannot be directly attributed to a specific project, product, or service but are necessary for the overall functioning of an organization. These costs are often incurred regardless of the level of business activity.

In this context, facilities depreciation refers to the reduction in value of physical assets, such as buildings and equipment, over time, which is an indirect cost because it supports overall operations rather than being tied to a specific project. Management services include costs associated with administrative and managerial functions that help run the organization as a whole but aren't directly linked to a single product or service.

The other options represent direct costs or other types of expenses. For example, compensation and supplies are typically operating expenses that can often be linked directly to specific projects or departments. Travel costs and equipment purchases can often be capitalized or allocated directly to specific projects, making them direct costs as well. Lastly, direct materials and labor costs are the primary components in product costing that can be directly traced to a product or service.

Understanding the distinction between direct and indirect costs is crucial for accurate budgeting, reporting, and financial analysis in any organization.